Canadians using their home as an ATM was drying up before the pandemic. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of credit secured by homes showing minimal growth in February. The slowdown is almost entirely due to a drop in personal loans in this segment, such as HELOCs.
Loans Secured by Residential Real Estate
Loans secured by residential real estate is credit secured with home equity. They’re more commonly known as home equity lines of credit (HELOCs). Some may be similarly structured, but sold under other names – so this is the technical term. These loans are popular after real estate price booms, as a way to spend newfound home equity without selling. Since the lender has something to collect in default, rates for this product are usually lower than unsecured credit.
Generally, credit growth and acceleration of that growth is a positive indicator. In addition to driving consumer spending, it’s a sign people are confident about borrowing. Lenders only lend to people they think have a reasonable ability to pay loans back. Plus, you usually only borrow if you think you can pay the debt off – with a few exceptions. How much debt can be carried and how much growth is up for debate. But generally, it’s a good thing.
When credit growth starts to decelerate or contract, it’s usually a bad thing. The consumer spending it was generating disappears, but equally important is the confidence. When growth drops off, people may be less confident of their ability to take out new types of debt. It could also be a sign that lenders are being less generous with this segment of lending. Or it could be a combination.
Canadians Owe Over $303 Billion In Debt Secured By Home Equity
The total of debt secured by residential property increased, but is under the record high. The balance reached $303.99 billion in February, up 0.30% from a month before. Growth over the past 12-months works out to an increase of 1.68%. This is the lowest rate of growth observed since September 2016. A little strange, considering real estate sales had by no means slowed down at this point.
Total Loans Secured With Residential Real Estate
The total of personal and business loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Over $268 Billion of Personal Debt Is Secured By Home Equity
The bulk of these loans were for personal purposes, like run of the mill HELOCs. Personal loans represented $268.51 billion of the balance in February, up 0.32% from last year. This works out to an increase of just 0.67% from last year – a decline in real terms, even taken at last month’s paltry 0.9% CPI. It was also the smallest movement for this segment since September 2016.
Personal Loans Secured With Residential Real Estate
The total of personal loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Canadians Borrowed Over $35 Billion In Home Equity For Business
Business credit secured with residential real estate is moving a little faster than personal loans. The balance in this segment represented $35.48 billion of debt in February, up 0.16% from last year. Compared to the same month last year, this is a 10.05% increase. It’s up significantly from last year, but the monthly growth was barely there.
Business Loans Secured With Residential Real Estate
The total of business loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Important to note this slowdown has been happening while mortgage credit was picking up again – an unusual dynamic. Real estate sales were also picking up during this period, and even increased into the post-pandemic period. Loans secured by real estate slowed before the pandemic was even on most people’s radar.
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The government’s been plastering cities like Toronto with ads begging people not to take out HELOCs, so I wouldn’t be surprised if they told banks to reel in the risk
Except that changed in March, when they basically started telling banks to lend whatever to whomever. lol
I expect this number to ramp up next month, unless people are REALLY in trouble.
HELOC’s aren’t ramping up in terms of banks extending MORE of it.
They could extend in terms of people with it using what they have left available.
The goal has an always will to make sure you have as much debt as possible. It helps to control political revolt when you have someone on a leash.
David,
So true. Most people don’t see it.
I’m slotting this even in the same category as rising insolvencies. Structural issues were beginning to appear in the economy, and this is just another one. This is also why it’s physically impossible to assume a v-shaped recovery.
Commercial retail vacancies to triple this year in prime properties. Eaton Centre was already seeing a relatively high turnover rate from what I’ve been seeing.
https://www.bloomberg.com/news/articles/2020-04-27/malls-face-catastrophic-hit-in-canada-with-unpaid-rent-surging?srnd=premium-canada
Well I just got pre approval for a 30 000.00 unsecured LOC without asking my bank or should I say I had to do is say yes. So my takeon this is the Banks will be going to the Gov’t here is what I did to help during COVID,,We now need your help to cover us.. All the while they are betting I won’t use it and call it in later for lack of use and for their own purposes (make more mula) screwing me and the Gov’t. This will be their way of sucking and blowing at the same time..
What rate were they asking?? Unsecured LOC is always higher
variable 2.45
Err do you have bad credit or something? Pre-covid anyone with a heartbeat would already be approved for 30-50k LOCs… it’s nothing new
I was wondering what that 2017-2018 bump in business-purposed HELOC borrowing might have been, when I remembered the short-lived startup craze that was going on at the time.
Cdn chartered banks are probably reconsidering lending all lending whether a Heloc loan or a mortgage..
With unemployment levels and uncertain real estate values..should banks be lending for any reason??
When the BOC bank rate is Zero..is this a good sign.
The BOC was established in the early 1930’s to stabilize the economy and the Money supply, but never let the BOC bank rate to fall below 2.5% until the dark days of WW2.
Is this a good sign when today the Bank rate is Zero???
The bigger problem is going forward is with the big banks not lending, the money laundering backed and owned secondary mortgage companies are replacing traditional lending.
SW,
The BoC is encouraging (and I mean “making them an offer they can’t refuse”) banks to lend, it’s their only idea for preventing mass carnage. Banks have zero risk because it’s all guaranteed by the taxpayer.
Business credit secured with residential real estate will ramp up as thousands of small business owners do anything to save themselves in May to June as the economy starts to re-open, but consumer demand will still be limited.